Where have my subscribers made some of their best money in 2016? From the price of money.
Market Roundup
Bullish calls on the Japanese yen in a couple of my services have paid off very well. So have a separate currency play and (more recently) a foreign short-term bond ETF that benefits indirectly from currency moves.
But can that run continue? And how can you profit?
Well, one of my biggest reasons for buying the yen and other currency recommendations is very straightforward: Central bankers are losing control. The Bank of Japan is a prime example, as virtually every action it has taken recently has had the opposite effect.
The BOJ wanted to boost stocks by launching more QE. Stocks fell. The BOJ wanted to tank the yen by cutting rates into negative territory. The yen surged. The BOJ wanted to support the Japanese economy and encourage more risk-taking by spewing happy talk far and wide. The economy sank back toward deflation and recession, and steel safes flew off the shelves as ordinary Japanese citizens rushed to stash physical cash in their homes rather than in the banking system.
So in a sense, these investment recommendations were anti-banker plays … and they’ve worked out very well. Not just in Japan, but elsewhere.
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| Can the rally in the yen continue? |
Here in the U.S., the Fed, the Obama administration and many mainstream Wall Street economists continue to claim the economy is in great shape. But with all those bubbles I talked about Friday either already bursting or on the cusp of doing so … and the latest economic data suggesting growth is rapidly decelerating … that talk looks more and more out-of-touch by the day. It completely misses the huge impact the credit and economic cycles have on investment markets.
The economic problems have important ramifications for the U.S. dollar, too. The greenback rallied significantly against many other currencies because U.S. growth was supposed to be so much stronger than foreign growth. But if our economy is now rolling over and joining the rest of the world in the soup, that eliminates a bullish argument. It also should lead to more “carry trade” unwinds (click the link for an explanation).
As a matter of fact, even the man known as “Mr. Yen” thinks the currency has more room to run. The former Finance Minister in Japan, Eisuke Sakakibara, earned that nickname for his ability to guide the direction of the Japanese currency in the 1990s. Now, he says the yen’s rally this year is going to persist.
[Read More – The Consequences of Reckless Lending – Mike Larson]
| “We could breach the 100-yen-per-dollar level.” |
His take: We could breach the 100-yen-per-dollar level, after already rallying from around 120 at the time of my initial yen long positions to 108 or so today.
So no, I don’t believe this move in my favorite currency-related investments is over, even as there will undoubtedly be corrections along the way. That should have positive spillover effects for things like gold and gold shares and low-risk foreign bond funds and ETFs.
For the stock market, it’s more of a mixed bag. If the dollar loses more ground because the U.S. economy is sinking and central bank policy is backfiring, that should hurt economically sensitive, higher-risk stocks. But it should continue to put a bid under the less-cyclical, “safe yield” stocks I’ve been bullish on for some time.
Just look at the vast performance gap between something like the Financial Select Sector SPDR Fund (XLF) and the Consumer Staples Select Sector SPDR Fund (XLP) to see what I’m talking about. XLF hasn’t made a new high since last July, while XLP just hit an all-time high.
In other words, if you want to make money in this market, keep your eye on the relative value of different kinds of money. I know I am!
What thoughts do you want to add here? Is the dollar likely to fall further against my favorite currencies, including the yen? Or is it poised to rally? What impact will that have on the stock market, if any? How are you profiting from these trends? Hit up the comment section and weigh in.
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It’s the start to another week … and judging from the lively discussion at the website, many of you are fired up and ready to go! Central bank policy, and the impact on the markets, was the biggest issue on the table.
Reader Chuck B. said: “This is a most tenacious bubble – it doesn’t seem to want to pop. What that means, of course, is that when it does inevitably burst, it is going to do far more damage to the economy than if it had popped at an earlier stage.
“I fear that, even at 87, I am going to see my second Great Depression – or Greater One that could make the first seem like child’s play. It could mean the end of the nation I grew up in – or what remains of it, as the politicians panic.”
Reader Badger10 said: “We have a debt problem in our country and it’s being ignored. High debt doesn’t sustain growth. We are getting volatility again at these higher levels, which is a sign of topping action in the market.
“The media is so bullish that it scares me. But after seven years of ZIRP, it’s losing its effectiveness.”
Reader Debra added: “How nice of past and present Fed chairs to allow us to join their family reunion! As usual, none of them knows which way is up. So of course they always have the deer-in-the-headlights look if anyone asks a substantive question. The incompetence quotient is sky-high for sure.”
Reader Ross L. said: “I believe the Fed members are a bit like the Wizard of Oz from the classic film. They want us to believe they are all knowing and powerful, but like the movie, they have nothing to do with reality. They are riding the wave of their particular breed of fame, trying to be somebody.
“To the average American citizen, they don’t mean diddly-squat but they will continue to have something to say regularly. To me they are mostly blowing smoke. The bond markets don’t believe them either, as far as I can tell.”
Lastly, Reader Bill said: “If everything was fine, they would pay me interest on my money. Low and zero interest rates alone prove that the financial world is in bad financial shape.
“These people are paid to try to deceive us. No telling what would happen if they expressed their fears and the truth. Greenspan could have not been as incompetent as he appeared to be in the end.”
[Read More – Yet ANOTHER Billionaire Warns About Coming Chaos – Mike Larson]
Thanks for sharing, and please do keep those comments coming. Bond traders don’t seem enamored with central bank policy, and neither do the men and women trading precious metals. Stocks are still trying to hang in there … but can that really persist much longer? I’m skeptical.
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The problem with experimental, untested, theoretical policies is that they often backfire when unleashed in the real world. The Federal Reserve and other central banks are finding that out now, as QE and negative interest rates are crushing financial stocks the world over.
The mechanism, as the Wall Street Journal notes, is falling profit margins. A bank’s “Net Interest Margin,” or “NIM,” is the difference between the yield a bank can charge on things like deposits and what it can charge on loans or earning on longer-term investments. Central bank policies are crushing NIMs, and kneecapping one of the biggest sectors of the stock market in the process.
The Burj Khalifa in Dubai may lose its “world’s tallest building” title … because another taller building may rise out of the desert nearby. Developer Emaar Properties is planning to construct the creatively named “The Tower” over the next few years, promising that it will just eclipse the height record set by its neighbor.
Jordan Spieth suffered an epic meltdown on Sunday at the Masters golf tournament, preventing a repeat title. The green jacket went to 28-year-old Englishman Danny Willett instead.
So is Mr. Yen on target – and if so, are you profiting from the currency’s move against the dollar? What do you think about the problems in the banking sector? Is that going to undercut the market rally? Have you visited the Burj Khalifa, or Dubai? And if so, what do you think of the building boom there? Let me hear about it below.
Until next time,
Mike Larson
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I needed to offer a quip about the meeting of the Fed Chairs: there was a reference to them “being at the helm of the world’s greatest economy.” I offer the opinion that they are at the helm of the Death Star. Oy!
Thanks for the great fodder!
This could be building up to a bad October
Real money represents actual work to obtain. It’s shorthand for the man-hours put into a given service or product. If they expand both products and currency at the same rate, prices stay constant. If on the other hand production outpaces currency expansion, prices decline from which everyone benefits. Currency not backed by any goods soon will not be trusted. Hence America’s reduction in production but increasing in currency means inflation is coming or worse no one will take the dollar in exchange for anything.
You are correct! That’s why we are going to a gold backed US Treasury note, as we can’t defend the dollar by raising interest rates without destroying our current monetary system and crushing the rest of the world! Buy Jr Miners/Mining Banks, Streamers, MidCap Miners, and Senior Miners, and of course, THE REAL PHYSICAL Au/Ag…..
Best I can tell the only miner that actually makes money, is unhedged, and has no debt is Randgold (GOLD). Jim
Amen
TIMING OUT
A complete, comprehensive collapse of the American financial and political system is a good 50 years off. It may not happen when we either want or predict. Nobody knows the future. The good part of a real financial and government collapse and the civil disorder and panic that follows is the end of the political class, as it is.
Many people will die, perhaps up to 1/2 of all people living in our largest cities, particularly on the coasts or near them. This would weed-out the dumbest, greediest, and laziest of the general population and decentralize what is left of government at all levels. I regard such developments as a long time coming. Can’t wait either. I’m running out of time myself at 87 years of age.
So we have two 87 year old Chuck Bs LOL! We seem to have ideas that are sometimes similar, sometimes different. Maybe different signs, if there is anything to that. I’m a Libra, Virgo rising – curious what you are. I think I could still live to see changes I’d rather not. Without help from science. You think it could take 50 years. In 50 years, people might be leaving some seacoast cities as the water rises. There WILL be changes – some good, some not so… We have seen a few in our time.
Did anybody see the editorial written by the former Swedish P.M.? He ripped Sander’s ignorance saying that the only reason the Scandinavian countries were prospering is because they have been cutting the size of government and instituting free market reforms. In 1970 Sweden had the fourth largest economy. After thirty years of Socialism they dropped to fourteenth and decided they had enough. Jim
Still, I kind of like Bernie as a person – better than the alternative, anyway. ‘Doesn’t mean I would vote for him, of course. Material the election people sent me for our Primary on the 26th, shows I can choose “Uncommitted to any Presidential candidate.” That is certainly my choice. Or maybe write in Chris Davis, after what he did to the Red Sox yesterday.
Sorry, Mike
Chuck. Do you want more of the same government that we have? Not voting means more of the same.
HI Mike, I boat gold at around 1500 oz. stored in Singapore, My question is; Should i sell now or
whate for a better price.?
Thank you for your response,
Lidia
I would wait another few weeks….at least if you want to get out. Wave 5 up should be coming. Underline should.
If you have physical gold, Lidia, you should never sell it, barring necessity. It is INSURANCE, not an investment. You hope you never need it, and leave it to your heirs.
Read that as boat gold at$1500 or boatload of options at $1500. I would sell some at $1500 unless it gaps up over $1500 overnight. If the megabanks know gold will see new highs they will sell at$1500 to buy back at $1300-1400 because $1500 was major support now resistance. Frankly if you are not physical by $1500 plus you will not be physical at $1700 plus. You will settle in paper. Good luck.
I appreciate your comments Mike.
Sorry, I don’t play in the currency markets. I buy good dividend payers when they’re “on-sale” and utility another sector ETF’s when they’re “on-sale.”
So my utilities hit new highs recently (sold most of the position), and materials are recovering quite well, and may sell some there soon. Oil is ip but, not near enough to get excited.
Another day, another dollar made!
Safe yield stocks with pristine balance sheets and “expected” continued growth are ideal investments ’till we see a sustained bull market. Currently stocks are behaving on such ridiculous news such as “Under Armor took a hit because Jordan Spieith had a meltdown at the Masters”.
I like the new methodology that is used in the media today. Yesterdays quote. The Japanese materials section dropped but not as much as anticipated. A bad news report spun to make it look good?
I am truly surprised. I read Money & Markets daily but nobody commented on the fact that Goldman Sachs just paid a 5 billion dollar fine for their underhanded dealings in the 2008 meltdown. Guess this type of thing is now common place ho hum incident. There was no fine or declaration of blame or prison time for GS. So what else is new. No accountability today.
That’s kind of old news, Gordon, or related to old news, anyway. And $5 Billion is sort of “coffee money” for GS. Just a cost of doing business – which shows how corrupt our economy really has become, with all the controls the politicians have placed on it.
Jordan Spieth had a meltdown in the Masters, so Under Armour took a hit. The markets often react to such “news”, showing just how irrational they really are. A company can be doing well, and something as “off-the-wall” as that can cause the stock price to fall, Or a company may be nearing bankruptcy, and some item of positive news only vaguely related to the company, may cause its stock to shoot up. A successful investor needs to be well versed in psychology, at least as much as in economics.
Very well said. I thought very much the same. If I catch a cold, I don’t really expect the stocks of Sigma-Aldrich or Dow Corning to reel from a lethargic day of work from me. I get “Get some rest, Mark. Let’s get after it again tomorrow. Hang in there.” The market now seems to be shoot first and then say shoot I should’a looked first.
I blame both parties not keeping the debt in
control in the last 10 years mostly under Obama policies . The US Gov’t has told the
American people lies concerning the economy , the real unemployment rating , inflation rate . I really believe we are in real
Danger soon but I cannot see how soon !
The political system driving the Republican party has shot itself in the foot again.. The next POTUS will be Hillary. The system is rigged, and the spending/debt runaway train can’t be stop without a total crash of the world economies under the dollar. The powers that be know that putting off the inevitable is unspoken policy.. The question everyone wants to know is the timing of the coming economic crash.. All we know is it will be set off by a major terrorist attack in the U.S. and followed by a cascading domino affect of the stock market, real estate market and widespread unemployment. Trump and Cruz were a gift to Hillary’s unhinged dream of a socialistic regulatory America..
The Masters is great for the local economy in Augusta, Georgia, Chuck have you never read the Economics of Sport?